Acca aaa s21 Notes

September 2021 to June 2022 exams
Watch free ACCA AAA lectures 
96

---

Only on 
OpenTuition
you can find: Free ACCA notes 
•
Free ACCA lectures 
•
Free ACCA tests 
•
Free ACCA tutor support 
•
The largest ACCA community
THE AUDIT OF GROUP FINANCIAL STATEMENTS
Chapter 21
GROUP AUDITS
1. Introduction
Generally, each separate company in the group will have been audited as normal, as though it were a 
stand-alone company. This chapter deals with auditing the group financial statements, for example 
the consolidated financial statements. The audit of group financial statements requires some 
additional steps and considerations not seen in the audit of individual companies.
The task is simpler if the auditor of the group financial statements also audits all components of the 
group. Otherwise, the group auditor is having to place reliance on the work of component auditors.
2. The additional work in summary
Broadly the additional work relates to the following:
๏
What is the proper way to deal with a company’s investments in other companies?
‣
A simple investment
‣
An associated company
‣
A company that must be consolidated (ie subsidiary)
๏
The general name for a part of a group is a 
component.
๏
What happens if the auditor of the group is not the auditor of all components?
๏
Care is needed with intra-group balances that must be reconciled (for good-in-transit, cash-in-
transit, etc) and eliminated on consolidation.
๏
Unrealised profits in inventory (and perhaps on the transfer of non-current assets) must be 
eliminated.
๏
The process of consolidation has to be carefully checked ie that the amounts in each category 
are added up properly to give the group totals.
๏
The goodwill figure(s) have to be verified and checked for possible impairment.
๏
If a company has been acquired part-way through the year then the profits will have to be 
apportioned: profits prior to acquisition are bought; profits after acquisition are earned.
๏
Uniform accounting policies must be applied in the preparation of consolidated financial 
statements.
๏
The financial statements of group companies would be expected to have the same reporting 
date if consolidated.